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Serving Central Alabama
Photo of attorneys Nicholas A Jones and Alyssa L Hawkins

New tax laws for alimony mean creative property division

As of Jan. 1, 2019, new regulations replace the law dating back to the 1940s that provided a tax break for those who pay spousal support. The new tax laws remove that tax deduction for payers and relieve the recipient of the obligation to pay taxes on alimony.

While you and your spouse may not make it to court by the deadline for obtaining the old tax breaks, you may still be able to part with a fair financial arrangement. In fact, many Alabama couples are looking for shrewd ways to manipulate their asset division to get the maximum possible tax benefits.

Tax matters

You may have reasonable concerns about your finances following your divorce. A marriage breakup typically means finding ways to manage on half the income you had together. You still must maintain a home and pay for your living expenses, which is even more complicated if you have children. Perhaps your most valuable tool at this time is your civility with your spouse. If you and your future ex can remain cooperative, you have a better chance of obtaining a fair division of assets.

One common sticking point is what to do with the home. While keeping the home may be the sentimental choice, it is important to consider all the expenses that go along with it, including the mortgage, maintenance, utilities and taxes. Selling the home may be more practical, especially if you qualify for capital gains exclusions. Selling while still married increases the amount of that exclusion.

Other financial matters to consider

While alimony may now have tax ramifications for the payor, property division payments typically do not. Some couples have decided to break their division of assets into several payments spread out over time. While this may spare you the tax ramifications of alimony, you should be aware of the risks, for example:

  • Alimony payments are protected from discharge if the paying ex files for bankruptcy, but a bankruptcy ruling may discharge installments on asset division.
  • If you are receiving alimony and your ex stops paying, the court can garnish your ex’s wages up to 50 percent, but with property division installments, the limit is 25 percent.
  • Receiving asset division in installment payments may help you plan your post-divorce budget, but a payment plan often increases the tension and resentment between divorced couples.

If your divorce is stretching past the Jan. 1 deadline for the old alimony tax laws, you may benefit from advice and guidance of an attorney who can assist you in arriving at a property division agreement that will help you meet your post-divorce goals.

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